Featured Research

from universities, journals, and other organizations

Engineers: Non-compete agreements have high cost for employees

Date:

October 7, 2011

Source:

Massachusetts Institute of Technology

Summary:

A new study of more than 1,000 engineers shows that non-compete agreements come with a high cost for employees: When those workers do shift jobs, roughly one-third of them end up leaving their chosen industry altogether, often at significant financial cost to themselves.

Share This

Technology firms frequently require workers to sign non-compete agreements, which typically bar their employees from joining rival companies for one to two years. For firms, the agreements keep workers from taking the knowledge and skills they have acquired and using them to help a rival.

Related Articles

But a new study of more than 1,000 engineers, conducted by an MIT professor, shows that non-compete agreements come with a high cost for employees: When those workers do shift jobs, roughly one-third of them end up leaving their chosen industry altogether, often at significant financial cost to themselves.

"People are highly constrained by their non-compete agreements," says Matt Marx, an assistant professor at the MIT Sloan School of Management. "When people leave their jobs, they often leave their industry. Non-compete agreements leave them with a choice of staying where they are, or taking a career detour."

Marx's findings are presented in a new paper, "The Firm Strikes Back: Non-compete Agreements and the Mobility of Technical Professionals," published in the October issue of the American Sociological Review.

Many workers not informed until starting a job

Non-compete agreements have become a common feature of the workplace. Marx has found that about half of tech-sector employees must sign them, while another recent academic study has determined that about 70 percent of executives sign them as well.

The agreements are partly a byproduct of the technology sector's rapid pace of change, which has altered America's business landscape in recent decades. "We're no longer in that era where people take one job out of college and stay there for 30 years," Marx says. "That's not life anymore."

And while non-compete agreements are often associated with information technology firms, Marx says the issue applies to many business sectors. "Biotech companies use non-competes as much as the software industry does," he observes. The agreements are also a matter of state law; some states use them and others do not.

In his study, Marx surveyed 1,029 engineers, who were initially randomly selected from a membership list of the Institute of Electrical and Electronics Engineers (IEEE), covering a variety of high-tech fields. He also conducted separate in-depth interviews with 52 people who have worked on voice-recognition technology (a field in which Marx himself once worked). In all, Marx found that 32.6 percent of tech workers who sign non-compete agreements wind up moving to entirely different industries when they take their subsequent jobs. In many cases, these workers stopped applying specific skills they had developed -- often after obtaining a PhD -- and took pay cuts.

"When people take a career detour, they sometimes earn less money, lose touch with their colleagues, and their skills atrophy," Marx says.

To be sure, as Marx notes, a common defense of non-compete agreements is that well-educated employees should recognize these pacts as a standard practice and understand the implications of signing one. However, Marx notes, most people in his survey who had signed a non-compete agreement were not informed they would need to do so until they had already committed to the job in question.

"Seventy percent of people said they were informed only after they accepted the offer," Marx says. "Half the time it was after they showed up for work. On the first day, they enroll in a 401(k), set up direct deposit, and, oh yeah, are given this non-compete thing to sign. People get savvy as they get older, but a lot of people are blindsided by it."

As a remedy, the state of Oregon, for one, recently passed a law requiring firms to make clear in offer letters if employees will be expected to sign a non-compete agreement.

The geography of the non-compete

The uneven mixture of state-level regulations concerning non-compete agreements adds some further wrinkles to the issue. Ten states -- including a pair of high-tech hubs, California and Washington -- restrict the use of non-compete agreements, thus allowing workers to move around more freely. In Massachusetts, by contrast, non-compete agreements are enforced, although the state legislature has held hearings this year on the subject of non-compete agreement reform.

In his ongoing research, Marx is examining whether an awareness of non-compete agreements pushes high-tech workers to look for jobs in states such as California where non-compete agreements are a non-factor.

"Although non-competes prevent people from changing jobs within a state," Marx notes, the agreements may "encourage mobility out of a state. If people can't get jobs locally, they [may] go to other states like California where they have that flexibility."

Marx, who has conducted several studies of non-compete agreements, has produced "convincing" work "showing that there really are career effects in this area," says Olav Sorenson, a professor at the Yale School of Management, who notes that there are "potential benefits to firms as well" from reducing use of the agreements.

"It's not a zero-sum game if you're getting a good match between employees and firms," Sorenson says. "And one of the difficulties with the non-compete agreements is that it makes it more difficult for employees to find the right firm for them." In the economy as a whole, Sorenson adds, some highly skilled technology workers "are locked up in firms where they're not creating as much value as they could elsewhere."

To further analyze this dynamic, Marx is also currently researching whether non-compete agreements affect the flow of workers within industries, and whether they affect the pool of talent available to smaller companies and startup firms.

More From ScienceDaily

More Science & Society News

Featured Research

Mar. 3, 2015  Why do people shake hands? A new study suggests one of the reasons for this ancient custom may be to check out each other's odors. Even if we are not consciously aware of this, handshaking may ... full story

Mar. 3, 2015  It appears that stress markers in unemployed people can be found, independent of smoking, alcohol consumption and overweight/obesity. Results from a study suggest that long-term unemployment may be ... full story

Mar. 2, 2015  Despite sharp increases in spending on cancer treatment, cancer mortality rates in the United States have decreased only modestly since 1970, a study has found. "Our results suggest that cancer care ... full story

Mar. 2, 2015  In the first study of its kind since the 1920s, rats in New York City were found to carry a flea species capable of transmitting plague pathogens. Among them: 500-plus Oriental rat fleas, notorious ... full story

Mar. 2, 2015  The odds of picking a perfect bracket for the NCAA men's basketball March Madness championship tournament are a staggering less than one in 9.2 quintillion (that's 9,223,372,036,854,775,808), ... full story

Mar. 2, 2015  A survey of US high school students suggests that 1 in 5 female students and 1 in 10 male students who date have experienced some form of teen dating violence (TDV) during the past 12 months. "These ... full story

Mar. 2, 2015  One of the first American national studies to examine risk factors for use of synthetic marijuana among a large, nationally representative sample of teens. Popular among teens, in 2011, synthetic ... full story

Mar. 2, 2015  Pediatricians are facing increasing pressure from some parents who want to spread out the recommended vaccine schedule for their children by postponing vaccines, pointing to a need for improved ... full story

Feb. 27, 2015  Global health experts believe the current data on cancer prevalence, incidence and mortality in sub-Saharan Africa -- which determines how billions of pounds of international development money is ... full story

Featured Videos

Woman Convicted of Poisoning Son

AP (Mar. 3, 2015)  A woman who blogged for years about her son&apos;s constant health woes was convicted Monday of poisoning him to death by force-feeding heavy concentrations of sodium through his stomach tube. (March 3)
Video provided by AP

Nurse Who Survived Ebola Virus to File Lawsuit

AP (Mar. 2, 2015)  A lawyer for Nina Pham, the 26-year old nurse who survived after contracted the Ebola virus, says the young woman&apos;s &apos;life has changed forever. &apos; Pham is preparing to file a lawsuit against Texas Health Resources for negligence. (March 2)
Video provided by AP

Related Stories

Dec. 9, 2014  The system that allows patients rapid access to expensive new treatments lacks transparency and penalizes small and low-income countries unable to negotiate lower prices with pharmaceutical ... full story

Sep. 10, 2014  Attending work while suffering a depressive illness could help employees better manage their depression more than taking a sickness absence from work, a new study has found. The study is the first ... full story

May 13, 2014  On average, a morbidly obese employee costs an employer over $4,000 more per year in health care and related costs than an employee who is of normal weight, research shows. The study also revealed ... full story

Sep. 28, 2010  A study of employees at a west Michigan hospital showed some of the most unhealthy workers that researchers had ever seen. But in four years, the workplace wellness plan had fueled some of the ... full story

ScienceDaily features breaking news and videos about the latest discoveries in health, technology, the environment, and more -- from major news services and leading universities, scientific journals, and research organizations.